Music Royalty Talks Consider Cell Phone Mandate

A long-running dispute between radio broadcasters and the recording industry over music royalties has taken an unexpected turn with a proposed settlement that threatens to drag the mobile phone industry into the ring.

The compromise under discussion by radio broadcasters, recording labels and recording artists could include a federal mandate that all new cell phones come with a built-in FM radio chip. While a deal is far from final, the prospect that the government could dictate a key design decision for such a ubiquitous consumer device has alarmed electronics manufacturers and wireless providers.

"This is two old-media industries attacking the new wireless broadband industry," said Gary Shapiro, head of the Consumers Electronics Association. "This is a battle that doesn't involve us."

Building FM radio into cell phones requires an additional antenna, which could add weight and bulk to devices prized for their sleekness, Shapiro said. It could also drain battery life more quickly, which could lead manufacturers to remove other features from their devices, he added.

"We don't think Congress should accept a back-room deal on how an iPhone should be designed," Shapiro said. "We think consumers should choose and companies should choose."

For years, the National Association of Broadcasters has been fighting a music industry proposal that would require radio stations to pay music royalties to recording labels and performers for the right to play their songs on the air.

Current law requires broadcast radio stations to pay royalties to songwriters, but not recording labels or artists. Broadcasters argue that the existing arrangement makes sense because radio airplay provides free promotion and drives music purchases and concert ticket sales.

But compact disc sales have dropped off, and sales of digital albums haven't made up the difference, prompting labels and artists — represented by a group called musicFirst — to step up their push to start collecting royalties, too.

Successors to over-the-air radio, such as satellite radio, Internet radio and cable TV music channels, are required to pay performance royalties, noted Marty Machowsky, a spokesman for musicFirst, which is backed by the Recording Industry Association of America and the Recording Academy. Broadcast radio stations, he said, get a "free ride" — paying nothing for "musical performance which is the foundation of their business."

Both the House and Senate Judiciary Committees have passed bills that would give recording labels and artists a cut of advertising revenue that radio stations generate by playing their songs, but neither contains an FM chip mandate. Both bills have stalled due to fierce broadcaster resistance. Faced with a stalemate, lawmakers have asked NAB and musicFirst to try to negotiate a compromise.

The proposed settlement would establish a tiered system of royalty payments that would bring in a total of roughly $100 million for the music industry. Commercial radio stations with more than $1.25 million in annual revenue would pay royalties totaling 1 percent of revenue. The smallest commercial and nonprofit stations would pay either 1 percent of revenue or $100 annually, whichever is less.

As this battle has dragged on, new rivals to broadcast radio have grown stronger and drawn more listeners as digital music players and streaming Internet radio have flourished. If Congress approves the compromise with the FM radio mandate, it would be a victory for NAB, which is seeking to expand radio station audiences.

Both the recording industry and the broadcasters trumpet the clause as a win for consumers. Machowsky said FM radio on cell phones "would give consumers more ways to listen to and enjoy music."

And Dennis Wharton, executive vice president of the National Association of Broadcasters, which represents over-the-air radio stations, said such a requirement would provide a valuable public service — particularly in emergencies, when consumers often tune into local stations seeking critical public safety information.

But Jot Carpenter, vice president of government affairs for CTIA-The Wireless Association, which represents wireless carriers, insists that while consumers do like to listen to streaming Internet radio and music downloads on their wireless devices, there is "not a huge desire to listen to over-the-air, ad-laden radio" on mobile handsets. Phones with FM radio chips are not in high demand, he noted.

At this point, NAB and musicFirst are pushing ahead. They are taking the potential agreement back to their members to try to get buy-in on a deal that they can take to lawmakers after the summer recess. And they hope that Congress will act in the fall.

"Nothing is locked down just yet," said Mitch Bainwol, chief executive of the Recording Industry Association, "but we're on the precipice of an historic breakthrough."

A long-running dispute between radio broadcasters and the recording industry over music royalties has taken an unexpected turn with a proposed settlement that threatens to drag the mobile phone industry into the ring.The compromise under discussion by radio broadcasters,...